A new analysis found that eliminating student loan repayments wouldn’t stimulate the economy as much as some expect it would, Fox Business reports.
A new report published by the Committee for a Responsible Budget indicates that forgiving all student loan debt would cost about $1.5 trillion and increase cash flow by about $90 billion per year, which is a small increase to the economy.
Student loan repayments, which have been on pause amid the coronavirus pandemic, are set to resume in January. Democrats have been pushing to nix some student loan debt as a way to provide economic relief amid the pandemic.
According to Fox Business, about 1 in 6 Americans owes money on federal student loan debt, which is the largest amount of non-mortgage debt in the country.
Federal Reserve Chairman Jerome Powell has called the student loan debt a major hindrance in people’s “economic life.”
"There are a number of benefits and costs associated with canceling student debt," the report states. "But as a stimulus measure, its 'bang for buck' is far lower than many alternatives under consideration or the COVID relief already enacted."
According to the analysis, eliminating the debt would not equal the federal government sending that amount of money in cash to households across the country. Instead of giving the average household an extra $15,000 to spend, it would relieve them of their monthly interest payments, which frees up about $200 per month for the average borrower, the analysis shows.
"In other words, because borrowers often pay back their loans over 10, 15, or even 30 years, debt cancellation will increase their available cash by only a fraction of the total loan forgiveness," the report said.
The report also notes that the debt cancellation would benefit individuals with higher incomes who likely did not lose their jobs amid the virus-induced economic downturn. The analysis found that a student debt wipe out is not "well targeted toward those experiencing income loss. Nor is it well targeted toward those with low incomes."
Joe Biden has shown support for eliminating some student loan debt "immediately" if he becomes president. A Democrat proposal would forgive $10,000 in student loan debt. The government would also cover monthly loan payments for people with private student loans until September 2021.
“Immediate $10,000 forgiveness of student loans, helping people up there in real trouble," Biden said. "They’re having to make choices between paying their student loan and paying the rent. Those kinds of decisions.”
A Biden official later told Fox News that the former vice president prefers that Congress decide on the student loan debt rather than issue an executive order.
Marisa Herman, a Newsmax senior reporter, focuses on major and investigative stories. A University of Florida graduate, she has more than a decade of experience as a reporter for newspapers, magazines, and websites.
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